Interpreting Forecast Bias Information The treasurer of Glencoe, Inc., detected a forecast bias when using the 30-day forward rate of the euro to forecast future spot rates of the euro over various periods. He believes he can use this information to determine whether imports ordered every week should be hedged (payment is made 30 days after each order). Glencoe’s president says that in the long run the forward rate is unbiased and that the treasurer should not waste time trying to “beat the forward rate” but should just hedge all orders. Who is correct?

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
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Interpreting Forecast Bias Information The treasurer of Glencoe, Inc., detected a forecast bias when using the 30-day forward rate of the euro to forecast future spot rates of the euro over various periods. He believes he can use this information to determine whether imports ordered every week should be hedged (payment is made 30 days after each order). Glencoe’s president says that in the long run the forward rate is unbiased and that the treasurer should not waste time trying to “beat the forward rate” but should just hedge all orders. Who is correct?

 

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